Market pullbacks have a way of making great businesses look broken when nothing has really changed the company’s long-term trajectory. A fear-driven sell-off is often just noise, reflecting a change in sentiment rather than the business’s competitive position.
Microsoft (NASDAQ: MSFT) and Oracle (NYSE: ORCL) are two cloud giants experiencing tremendous demand for their services. This creates a buying opportunity after these stocks fell on concerns around competition and spending on artificial intelligence (AI) infrastructure.
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Microsoft
Microsoft stock is currently down 23% from its recent highs. The sell-off was triggered amid the broader rotation out of software stocks at the start of 2026. This centered on questions about AI’s impact on software disruption and Microsoft’s heavy capital spending to support growth.
However, Microsoft continues to report solid growth. Revenue from Microsoft Cloud hit $54 billion, up 29% year over year, in the fiscal third quarter (which ended in March). Revenue from AI products reached an annualized run rate of $37 billion, up 123%.
These growth rates don’t indicate that competition is hurting Microsoft. The company would have reported higher growth in the cloud business if not for supply constraints. Revenue from its enterprise cloud platform, Azure, surged 40% in the quarter, despite insufficient data center capacity to meet demand.
Beyond Azure, the Copilot AI assistant is showing another green shoot for Microsoft. Microsoft 365 Copilot paid seats now exceed 20 million, representing a 250% year-over-year increase in additional seats paid last quarter. This growth indicates growing adoption by enterprises.
Some investors may not like gross margins slipping amid heavy investments in AI infrastructure. But assets like data centers have a long useful life that can generate higher margins over time. Despite heavy spending, Microsoft still posted a solid 20% growth in operating income last quarter.
A forward (one-year) price-to-earnings multiple of 22 for a “Magnificent Seven” company seems like a bargain. Given the surging demand for AI cloud services, Microsoft appears to be a solid investment at these discounted share prices.
Oracle
Oracle has been hit hardest, currently down 45% from its 2025 highs. The stock is down over aggressive spending on AI infrastructure and concerns around debt financing to fund its data center investments.
The company’s long-term debt has increased 71% to $159 billion over the past two years. However, management doesn’t expect to issue any additional debt beyond 2026. This sets up the potential for the stock to rebound this year if it continues to report strong growth in its cloud services.
Oracle is basically a leveraged play on the AI infrastructure build-out. But the reward for investors compensates for that risk. Revenue from cloud infrastructure services grew 84% year over year in the recent quarter to $4.9 billion. Demand for Oracle’s multicloud database services is on fire, surging 531%.
Cloud services generate recurring revenue, which is why Oracle uses debt to finance its infrastructure expansion. Of course, if demand for AI cloud services were to slip, the stock would take a hit.
Still, Oracle’s remaining performance obligations grew 325% year over year to $553 billion. This shows enterprises making a permanent shift to adopt AI. These obligations are not verbal commitments from customers — it’s contracted revenue, which gives Oracle a high level of visibility into forward demand.
Management raised its fiscal 2027 revenue guidance to $90 billion, signaling that demand is exceeding expectations. The guidance and recent quarter show a widening disconnect between the stock price and Oracle’s business performance.
It’s a bullish signal that analysts have been raising their long-term earnings growth forecasts, now expecting 23% annualized growth over the next several years. That is enough to deliver market-beating returns for a stock trading at 25 times this year’s earnings estimate.
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John Ballard has positions in Oracle. The Motley Fool has positions in and recommends Microsoft and Oracle. The Motley Fool has a disclosure policy.
2 Tech Stocks Down More Than 20% That I Think Are Coiled Springs Right Now was originally published by The Motley Fool
Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: finance.yahoo.com
